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A consortium headed by Manitoba Telecom Services Inc. that planned to bid on wireless spectrum in Canada has fallen apart, just five days before the federal government starts to auction off the new airwaves.

The Winnipeg-based company, also known as MTS Allstream, announced Thursday that its partnership with the Canada Pension Plan Investment Board and U.S.-based private equity firm Blackstone Capital Partners had dissolved.

The company said it remains qualified to bid on the Industry Canada auction, set to begin on May 27, but did not say if it would do so.

Shares of MTS gained $1.44 to close at $41.65 on the TSX following the announcement.

CEO Pierre Blouin said in a statement the three partners said they believe the business case for a new entrant in Canada’s national wireless market is sound, but could not reach agreement on "a handful of key issues."

"As we’ve indicated all along, if the right deal wasn’t there for us we wouldn’t pursue it. The same will be true at the auction, where we remain committed to taking a disciplined approach and maintaining both our current dividend policy and a strong balance sheet. We will see what the landscape looks like after the spectrum auction and review our plans accordingly," he said.

The company said it would not be commenting further on its strategy, citing auction rules set by Industry Canada.

Auction designed to spur competition

MTS was expected to be a player in the upcoming auction, in part because of the deep pockets of its two partners, and also because, under rules of the auction, 40 per cent of airwaves up for sale will be allocated for new entrants aside from Canada's three big wireless companies, Rogers Communications Inc., BCE Inc. and Telus Corp.

Winning bidders are expected to begin building cellphone networks and competing with the country's three established players by early next year.

How the breakup will affect MTS Allstream's efforts in the auction will depend on how the other players respond during the auction, said Lawrence Surtees, a telecommunications analyst with IDC Canada.

"Will it matter at all? Maybe, maybe not," he told CBC News. "If one or two of the other entrants go crazy and drive the price up, then maybe Allstream will have to do something."

Surtees said in that event Allstream could seek out new investors or perhaps even partner with another of the bidders and split the airwaves between them.

Canadian cable operators Shaw Communications Inc. and Vidéotron Ltée along with Toronto-based Globalive Communications Corp., parent company of Yak Communications, are expected to be the other major players for spectrum among the new entrants.

Surtees said the breakup of the group shouldn't change MTS Allstream's commitment to becoming a national player, however.

The company had said in announcing its plan to participate in the auction that it intended to appoint former Microcell Communications CEO Andre Tremblay to head the new cellphone carrier. Microcell operated the Fido brand before it was bought by Rogers Communications Inc. in 2004.